We Americans like to keep busy. We spend more time at our jobs than almost any other industrialized nation. We work nights and weekends at our stores and shops to keep our customers happy. We put ourselves through school while working. And we live in families where both spouses are, more likely than not, working. Some of us even work in retirement.

That probably helps explain why so many of us have been impatient with the recovery in the economy. Employment growth, both inIndiana and in the U.S. as a whole, has been sluggish. There have been some encouraging signs of job growth, and there have been a few months when hiring has looked like it was catching fire. But job growth has not yet come close to resembling the late 1990's, when employers seemed to put everyone with a pulse on their payrolls.

This reluctance of companies to add new jobs has fueled a suspicion in many hearts about the nature of this economic recovery. If the economy is not putting us to work, keeping us busy, some may ask, can it really be said to be healthy? That question is asked with even more urgency when it comes to our manufacturing sector, long viewed as the bedrock of the Indiana economy, whose job losses in recent years have been especially severe.

But as discouraging as the job situation may seem, the effect of this payroll stagnation elsewhere in the economy has been surprisingly restrained. Employment was down nationally in 2003, yet consumer spending on durables was up by 7.4 percent. With a slightly smaller number of workers on payrolls in 2003, the economy managed to produce 3.1 percent more output. And the unemployment rate was lower at the close of 2003 than it was one year earlier.

There's a simple explanation for this. Lurking behind all of the most familiar reports, including those on economic output, employment, and unemployment, has been the robust performance of productivity. We may not fully understand why, despite low levels of investment and a downturn in the stock market, companies have become so much better at producing more with less. But the implications of that change have been profound.

The Bureau of Labor Statistics now estimates that output per person-hour in the non-farmU.S. economy grew by 4.3 percent in 2003, coming off of a 4.8 percent growth in the previous year. In the capital-intensive manufacturing sector side of the economy, such increases are not unusual. For the economy as a whole, encompassing manufacturing as well as services, trade, and finance, they are virtually unprecedented.

It is almost a case of being careful what you wish for, lest those wishes be granted. Economists have always pointed to productivity improvements as the key to our competitiveness and prosperity. Now that they have arrived, we find that the improvements in productivity of the American worker can also mean that less workers are needed in factories, offices, and stores.

Many have questioned whether this surge in productivity in the national economy can be sustained much longer. Others have noted that since compensation gains have not kept pace, the benefits of all this workplace efficiency have so far been enjoyed by business owners, not the workers they employ. But we should let none of those quibbles obscure the big story here. Productivity growth has kept the U.S.economy in fighting trim, and has positioned us to prosper in the years ahead.

Patrick Barkey is director of the University of Montana Bureau of Business and Economic Research. He has been involved with economic forecasting and health care policy research for over twenty-four years, both in the private and public sector. He served previously as Director of the Bureau of Business Research (now the Center for Business and Economic Research) at Ball State University, overseeing and participating in a wide variety of projects in labor market research and state and regional economic policy issues. He attended the University of Michigan, receiving a B.A. ('79) and Ph.D. ('86) in economics.

Ball State CBER Data Center (cberdata.org) is a product of the Center for Business and Economic Research at Ball State
University. CBER's mission is to conduct relevant and timely public policy research on a wide range of economic issues
affecting the state and nation. Learn more.